Risk Compensation – Who Knew…

07-06-2009 | steve | Uncategorized |

Imagine a dark comedy club and George Carlin at the mic -

RISK, Risk Aversion, Risk Management, Risk Assessment, Risk Avoidance, Risk Reduction,  Risky Businessthe Movie,  RISK, THE BOARDGAME of Global domination, then there is Risk Compensation, who knew that there was another subject on Risk.  I risk even talking about it.

George would have had a heyday with this one!

Well, I for one did not know about Risk Compensation and SURPRISINGLY, I discovered this concept in an article in the April edition of Smithsonian, the official magazine of the Smithsonian Institute in Washington (where I would like to visit and is on my bucket list – until then, I live vicariously through the magazine).   This wonderful magazine highlights the arts, history, science and popular culture of our times.

In the article, “Buckle Up and Behave”, William Ecenbarger celebrates the 50th anniversary of the three point seltbelt, first developed by Volvo (The inventor’s name is Nils Bohlin for those excited by trivia).  Besides saving millions of lives, Mr. Ecenbarger counters with the notion that people are more daring because they are wearing seltbelts.   The feeling of greater security tempts us to be more reckless, the basis of risk compensation.  He states a few examples;

  • improved parachute rip cords did not reduce sky diving accidents due to overconfident sky divers hitting the silk too late
  • workers who wear back-support belts lift heavier loads
  • wilderness hikers take greater risks knowing trained rescue squads are on call
  • and if you are a sports fan, players who wear more protective gear engage in rougher play (one of hockey’s current debates – does wearing visors encourage more high sticking – Don Cherry would argue – yes!)

What made the article very interesting is it goes one step further and takes a closer look at our current economic meltdown.   Did bankers take greater risks because they were paid to do so and the negative consequences would not impact them personally?  Ultimately, that consequence would fall upon shareholders and drive a different mental attitude.   Columist George Will posed this theory, “Suppose that the American government had not engineered the first bailout of Chrysler in 1979: might there have been a more sober approach to risk throughout corporate America?

In light of the current bailout of the automotive makers,  it may have had a huge impact knowing that the safety net of government money would not be there.   It may not have stopped the economic tsunami but could have altered personal beliefs systems and ensuing behaviours.  To risk is human, that is what takes us forward.

That started some personal reflection.  Where is my “risk thermostat” set?

  • Am I taking the appropriate level of risk, personally or in business?
  • Am I “playing it safe?”
  • Am I taking greater risk without consideration of the impacts of my actions because of some perceived “safety net?”
  • Are my actions aligned to my beliefs?

Looks like the journey of self discovery continues, time to “buckle up” as the answers will drive me forward (no pun intended) and that is a good thing.

How about for you?

What setting is your “risk thermostat” currently reading?  What discoveries have you made?

    3 Responses to “Risk Compensation – Who Knew…”

    1. Matt Murray says:

      Intriguing post Steve, and great website! For those who haven’t yet met Steve, he truly is an individual who will inspire you with his personality alone, so I strongly suggest you take the opportunity to meet him.

      Personally my “risk thermostat” is on the low end and I often wonder if I give too much consideration to the impacts of my actions and as a result, am not able to reap the level of rewards as I could. I try to balance this by surrounding myself with people who have slightly higher risk thermostats.

      It’s a known theory that to achieve a high level of reward, you will have to accept a certain level of risk. While I don’t relinquish the bankers for their actions over the past few years, I can’t help but think the shareholders are being let off the hook. Perhaps the risk thermostats of those bank shareholders were too high as they continued to believe profits would rise without a related increase in risk on behalf of the organizations.

      Then again, without individuals with high risk thermostats, we likely wouldn’t take as many changes and subsequently would not achieve the growth as a society that we do today. I look forward to your next post!

      • steve says:


        Thank you for your thoughts and kind words regarding my website. I would concur that shareholders have had an impact on the economic collapse. I wonder if the risk thermostat can be applied to a segment of the population since many invest in a variety of vehicles with the intent to earn. Could it be that shareholders and investors also felt they could continue to ask for more without fear of a negative outcome, hmmmm, maybe this is classic re-telling of the goose that laid the golden egg.

        Thanks again for jumping into the fray and I look forward to seeing you soon (maybe next month?)!

    2. Vic Shewchuk says:

      Hey Steve-o cool stuff… have a read or re-read of Chris Argyris’ work, particularly his “Ladder of Inference” and “Double Loop Learning” to add to your postulations and musings….In addition to the Ladder of Inference, and Double-Loop Learning, some of his other key concepts include; Theory of Action/Espoused Theory/Theory-in-use, High Advocacy/High Inquiry dialogue and Actionable Knowledge.

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